Federal credit unions explore deregulation -- slowly

A little over a month ago, federal credit unions felt the breeze of deregulation waft over them. They became the first federally regulated depository institutions free to choose interest rates on deposits and loans.

Commercial banks would have turned cartwheels over such news, but the credit unions ''took it pretty calmly,'' says James Coyne, manager of the Federal Deposit Employees Federal Credit Union.

''On the whole, it was no big deal,'' said Mr. Coyne, whose Washington-based union serves employees of the Federal Deposit Insurance Corporation. Credit unions are nonprofit cooperatives serving a specific group of people (often employees of a single firm), and they have traditionally paid higher interest than banks on deposit accounts.

Deregulation had been expected by the industry. Federal credit union boards are now trying to figure out just what they'll do with their new freedoms. The commercial-bank industry, meanwhile, hopes to point to credit-union deregulation as a reason for speeding up its own deregulation, which Congress has scheduled by 1986, says Fred Elmendorf, assistant director of American Bankers Association.

According to the National Credit Union Administration, which was responsible for the deregulation, the board of each union can now determine what dividends to pay, minimum deposits to require, maturities to set, and early-withdrawal penalties to impose.

Prior to deregulation, federally regulated credit unions were limited to 12 percent interest ceilings on passbook and checking accounts. Before September 1981 the ceiling was 7 percent.

Last August the Federal Deposit Federal Employees Credit Uniion took maximum advantage of those limits, when they offered a $5,000 certificate that ran from 14 days to six years; depositors picked the maturity date. ''The certificate became a type of 14-day money market fund based on US Treasury yield,'' says manager Coyne. He added that deposits at the credit union increased 25 percent as a result of the 14-day certificate.

Because of deregulation, the credit union is now expecting to establish a draft or checking account similar to that certificate. The account would pay the going money-market rate (perhaps based on Donoghue's money-market average) and would allow direct deposit and unlimited checking.

Donald Beall, general manager for the NASA Federal Credit Union headquartered in Miami, has also ''been seriously looking at deregulation, especially regarding competition from money-market funds.'' Though not in the works yet, one possibility for the credit union is an instrument that would be similar to Merrill Lynch's Cash Management Account, which is a combination money fund and stock-brokerage account requiring a $20,000 minimum investment. But to finance such a venture, says Mr. Beall, would require raising interest rates on loans to members of the union cooperative, and that would be difficult.

In spite of not being able to make radical changes right away, Beall says he supports deregulation ''because it gives you the right to provide the product you want to provide through your own imagination and circumstances, as opposed to being told by the government'' what to do.

Edgar Callahan, chairman of the National Credit Union Administration, says deregulation won't cause any immediate change in the structure and services of most federal credit unions.

Like the NASA credit union, most of the 12,000 federal credit unions which are insured, chartered, and supervised by the administration simply don't have the financial means to pay more than 12 percent. Though money-market-type accounts and new types of certificates began before deregulation - and will be broadened because of it - Mr. Callahan says the ''vast majority of credit unions will not offer anything different'' from what they have now.

In fact, deregulation ''isn't meant to be something that has to happen right this minute for the credit unions to compete with banks and savings-and-loans,'' Callahan argues. Rather, it is ''to get government to stop telling (credit unions) what they can and can't do.'' He says credit unions are so diverse that ''for us to try and fashion rules that will serve all their needs is ludicrous.''

In the long run, deregulation will provide ''better management and far more expertise'' on credit-union boards, Callahan says, calling the effect more ''psychological'' than anything else. He believes it will force boards to make decisions for themselves.

Allen Sinai, a senior vice-president for Data Resources Inc., a Lexington, Mass., economic-forecasting firm, simply says ''deregulation is a good thing for the credit unions.''

The credit unions will be able to diversify services and sources of funds, he says. ''But whether their management is equipped to move quickly in deregulation is another question. If they don't move fast enough, they might get hurt,'' says Mr. Sinai. He pointed out that competition for savings will be keen as deregulation of other financial institutions speeds up. The credit unions have to be prepared.